Pre-Retirement - Defining Salary, Savings and Living Expenses

Setting up a Pre-Retirement Period

The Pre-retirement tab is used to model the transitionary period between the accumulation phase and the retirement phase. The tab is only accessible if at least one member of the household will be working at the start of the plan. When configuring the Income Parameters tab, the user can select if the household members are already retired or the age at which they plan to retire. The distinct analytical modeling of pre-retirement is only for the period when both are working. After one member has retired, the standard modeling applies.

 Pre-Retirement in Basic Mode

Annual Salary

The annual gross salary for each household member during pre-retirement. Salary is assumed to stay constant in real terms throughout the pre-retirement period.

Annual Savings

The portion of each member’s salary that is budgeted for savings annually. No assumption is made about sufficiency of the salary in meeting the income need. Even in the common case, when the salary is not sufficient, it is assumed that the savings specified by the member are still made.

Annual Living Expenses

The annual expenses for the household during the years of pre-retirement. Similar to salary and savings, living expenses are assumed to remain constant in real terms throughout the retirement period. This field is only applicable for the period in which no household member has retired.

 Pre-Retirement in Advanced Mode

Annual Salary

The annual salary is the annual pre-tax salary for each household member during pre-retirement.

Annual Savings in Qualified, Non-Qualified, or Roth

The portion of each member’s salary that is allocated to each tax-type account. In the case where a member has more than one of a specific tax-type account, the savings will be allocated to the first account of that tax-type in the withdrawal order. For more information on the tax-type accounts and withdrawal orders, see the Investment Accounts and Investment Strategies articles or the Methodology document.

Employer Contributions

The portion of employer contribution other than salary allocated to the qualified account.

Annual Living Expenses

Annual living expenses are the post-tax annual expenses for the household during the years of pre-retirement.

 Effective Tax / Tax Bracket

Taxes are calculated using either effective tax rate or tax bracket. In the effective tax rate calculation, one effective tax rate on capital gains and ordinary taxable income is applied, which can be used in circumstances where the household’s situation is such that the typical brackets are not applicable. In bracket-based tax calculations, the separate capital gain tax rate is applied on capital gains while bracket-based taxes are calculated on ordinary taxable income.

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